Retail inventories remain high despite automakers taking production cuts

Retail inventories remain high despite automakers taking production cuts

As demand for automobiles in India refuses to pick up and auto dealers struggle with financing unsold inventory, Indian automakers have been making drastic cuts in production to correct stock levels at retail dealerships. However, when CNBC-TV18 spoke with dealers across two major urban markets in West and North India, we found that inventories at the dealership level still remains high.

Breaking down the inventory picture across passenger vehicle and two-wheeler manufacturers over the last three months, we take a look at why inventories still haven’t corrected in keeping with the reduction in wholesale dealer billings:

Tata Motors dealerships continue to report inventories up to 60 days in September. This, despite the company adopting an entirely pull-based model for dealer billings: a unique and industry-first step in the current slowdown cycle, where the OEM has been doing wholesale sales reflecting solely on retail sales. Inventories over the July-August period have remained in the 45-60 day range due to retail sales dropping further. Tata Motors dealers we spoke to said that the company has promised to bring down inventory to 21 days by the end of the year.

For Mahindra and Mahindra, inventories have corrected a bit to 45-50 days on average across dealerships from over 60 days until a couple of months ago. M&M dealers tell CNBC-TV18 that retail sales have come down further, while billings from the OEM have only reduced by 8-10 percent, falling short of a big support move like some OEMs like Maruti Suzuki have taken. (MSIL reduced dealer billings by a third in August). Moreover, dealers we spoke with told us that M&M’s sales have been hit further in the last 4-5 months because of the new MG Hector and Kia Seltos, both models competing directly in the segment that M&M sells.

Maruti Suzuki, the country’s largest automaker, which accounts for half of all passenger vehicle sales in the domestic market, inventories with dealerships in the northern and western regions have come down to an average of 35 days, coming down by 5 days each in the last two months. The sharp correction coming on the back of the production cuts the company has been taking, however in the southern states the situation is worse, with one dealer reporting inventories of 2 months or 60 days for the last three months.

For Hyundai and Honda cars the inventory situation remains in the 35-40 days category. Ex-of-the Venue, Hyundai too has seen retail sales dropping, while many dealerships have been refusing to pick up orders from Honda Cars in the face of stocks piling up.

In the two-wheelers space, where inventory pile-up has been that much more alarming, Hero MotoCorp stares at perhaps the highest inventories in the category, with dealers holding 50-60 days of stock so far in September, though still less than the 65-70 day average in the month of July.

For Bajaj Auto, inventories have been easing, as the company cut wholesales by 21 percent in August and 15 percent in July.

For Honda Motorcycles and Scooters, inventories remain in the range of 45-50 days, as a dip in retail demand offsets production cuts by the OEM, which is the largest manufacturer of scooters in the country.

Lastly, for Royal Enfield, wholesale sales were down 23.7 percent in August, with dealers reporting stock levels of 30-35 days on average across markets, whereas earlier stocks were usually maintained at 21 days.

Both auto OEMs and dealers are now hoping that consumers return to showrooms in the upcoming festive season and that sales pick-up before they enter full-fledged inventory correction mode.

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